In the first phase, which typically takes place during the first 100 days after the transaction, the lack of structure can be somewhat daunting. The treasury and corporate finance functions in the new merged structure must be immediately operational, even though organizational decisions that will form the basis for the new external reporting structure are often still pending. It usually requires a powerful project management effort, based on the most likely hypotheses and scenarios, and aligning stakeholders with essential tasks, to ensure on-time data exchange and input from a variety of sources and to guarantee the quality of the final audit report.
During the second phase, which often starts in parallel with the first phase, best-in-class CFOs do several things. They identify the control capabilities the finance department will need; shift their attention to planning and performance management; and determine the financial processes, systems, and tools the business units will use. From a practical standpoint, it is often best to follow a dominant-model approach in this phase, which typically means adopting the acquirer’s model, to ensure financial control and compliance. The emphasis is on getting a robust solution in place quickly — not on holding out for super-sophisticated structures for the merged enterprise.
It is after the basic finance operations are established that CFOs can work on the long-term changes that will make their finance departments more effective and efficient. This is the third phase, and it entails instituting global standards for structures, processes, and practices to simplify financial control and compliance issues. The best CFOs seize this opportunity to take a fresh look at their established systems, processes, and practices with an eye toward upgrading them.
Throughout this transformation process, CFOs ensure that overarching quality and compliance standards are met. This is what Ferraris, the CFO of Enel, did after his Rome-based company made acquisitions in eastern Europe in 2006 and was assigning business unit CFOs to oversee those operations. “I have always sent in an Enel executive to implement the financial control function and a reporting system to ensure that we are speaking the same language,” Ferraris says.
The three roles of CFOs in mergers and acquisitions (strategy, synergy, and integration) and the six rules of M&A provide a sound foundation for success, but ultimately, the opportunity for corporate growth and profit through M&A is constrained by only one thing: the willingness of companies to enhance their capacity as deal makers by taking well-calculated risks and using innovative strategies and tools to achieve success.
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Irmgard Heinz is a partner with Booz & Company in Munich. She focuses on organization, change, and leadership and is head of the firm’s European performance management practice.
Jens Niebuhr is a partner with Booz & Company in Düsseldorf. He specializes in IT strategy and organization, finance, and performance management, primarily for the telecommunications industry.
Justin Pettit is a partner with Booz & Company in New York. He specializes in shareholder value and corporate finance and is the author of Strategic Corporate Finance: Applications in Valuation and Capital Structure (Wiley, 2007).
This article is adapted from Robert Hertzberg and Ilona Steffen, eds., The CFO as Deal Maker: Thought Leaders on M&A Success (strategy+business Books, 2008).